The Political Enforcement of Liberalism: Bargaining, Institutions, and Auto Multinationals in Hungary

Abstract

The demise of communism triggered large flows of foreign direct investment into Eastern Europe. This article examines the impact of recent changes in the international environment—the transformation of world production systems and the rise of neoliberalism—on bargaining between multinational corporations and post-communist governments. It focuses on the Hungarian automobile industry, one of the region's largest recipients of FDI. The Hungarian case illustrates the ability of small, open, and geopolitically weak states to parlay shifts in the global environment into a bargaining asset. The ascent of lean production heightened pressure on auto MNCs to develop local supplier systems capable of fast delivery of components to East European subsidiaries. The pull of backward integration was particularly strong for Japanese producers, whose non-European status enabled Hungarian state authorities to secure commitments to raising domestic content. Transplanting Japanese-style production in Eastern Europe proved less vexing for European MNCs, whose status as EU-based companies freed them of local-content requirements and whose preexisting supplier networks obviated heavy investments in the Hungarian components industry. But while Western auto producers enjoyed highly favorable terms of entry into Eastern Europe, even they could not elude the paradoxical effects of global changes on MNC/host state relations. The very eastward extension of the European Union's nondiscriminatory rules that facilitated EU-based firms' entry into Hungary also permitted host state authorities to parry efforts by MNCs to obtain particularistic concessions after entry. The Hungarian case thus demonstrates that MNC/host state bargaining in the post-Cold War period hinges more on the global positions of multinationals than on the structural vulnerabilities of capital-importing states ( per dependency theory) or the internal capacity of host states ( per statist theories).